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Japanese yen is trading quietly on Wednesday. USD/JPY is trading at 157.68, down 0.07% at the time of writing.

Fed expected to hold rates

The Federal Reserve meets later today and is widely expected to keep rates unchanged for a sixth straight time. The target range for the benchmark rate of 5.25% to 5.5% hasn’t changed since July and the Fed has shown that it is willing to prolong its “higher for longer” stance as long as is needed. Fed Chair Powell is expected to have a hawkish message for the market, which would likely provide the US dollar with a boost.

The Fed’s battle with inflation, which was running smoothly, has hit a bump in the road as consumer inflation is moving higher. Underlying inflation indicators have been hotter than expected and Fed Chair Powell has signaled that he will delay plans to cut rates. Powell could reiterate that message in today’s rates statement and the follow-up press conference.

The market will be looking for hints about the Fed’s rate cut plans. Earlier in the year, Powell signaled that he expected to lower rates three times in 2024, but that scenario is unlikely due to the unwanted inflation surprise. It’s conceivable that the Fed won’t raise rates until 2025, as Fed members will want to see evidence of sustainable price stability before shifting rate policy.

It has been a roller-coaster week for the Japanese yen, which spiked above the 160 level, a new 34-year record, on Monday, raising speculation that Tokyo had intervened in the currency markets to prop up the ailing yen. A hawkish Fed meeting later today could give the US dollar a boost against the majors, including the yen.

USD/JPY Technical

• USD/JPY has pushed above resistance at 156.62 and 156.80. Above, there is resistance at 157.30
• There is support at 156.30 and 156.12

The monthly ADP labour market report showed that America created 192K new jobs in April, above the forecasted 179K and following +208K in March (revised from 184K).

Overall, there was a slight slowdown in wage growth to 5% y/y from 5.1% a month earlier, which is still quite high because of high employment and the impressive pace of job creation by historical measures.

The report noted weakness in the information sector, which cut jobs and slowed wage growth. When broken down by company size, large companies with more than 500 employees contributed the largest portion (+98K).

When broken down by industry, Construction surprised (+35K), which is huge for an industry that makes up only 5% of the labour force. Among services, Leisure and hospitality (+56K) led the way once again.

The ADP report fuelled expectations of a strong Friday’s official statistics. Still, its impact on the market is tempered by the market’s focus on today’s FOMC meeting and the decline in predictive power in recent months.

The Australian dollar has steadied on Wednesday after sliding 1.4% a day earlier. AUD/USD is up 0.19%, trading at 0.6489 at the time of writing in the North American session.

Australian dollar slides after soft retail sales

Retail sales in Australia fell 0.4% m/m in March, following a downwardly revised 0.2% gain in February and shy of the market estimate of 0.2%. The decrease in sales was felt across all industries, as consumers held tight to the purse strings. On an annualized basis, retail sales grew by just 0.8% in March, the lowest level since August 2021.

The Australian dollar responded with sharp losses to the disappointing retail sales release. China posted soft PMIs which also weighed on the Aussie. The manufacturing PMI eased to 50.4 in April, down from 50.8 and just above the market estimate of 50.3. The services PMI fell to 51.2, compared to 53.0 in March and below the market estimate of 52.2.

The data indicates that manufacturing and services are showing little growth, another sign of the slowdown in China, which is Australia’s largest export market. Weaker economic activity in China means less demand for Australian exports, which is weighing on the Australian dollar.

Will Powell make a hawkish pivot?

The Federal Reserve meets later today, with little doubt that it will maintain interest rates for a sixth straight time. The target range for the benchmark rate of 5.25% to 5.5% hasn’t changed since July and the Fed has shown that it is willing to prolong its “higher for longer” stance as long as is needed. Fed Chair Powell is expected to have a hawkish message for the market, which would likely provide the US dollar with a boost.

AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6504. Above, there is resistance at 0.6537
• 0.6439 and 0.6406 are the next support levels

US ISM Manufacturing PMI fell from 50.3 to 49.2 in April, below expectation of 50.1, and back in contraction. New orders fell from 51.4 to 49.1. Production fell from 54.6 to 51.3. Employment rose from 47.4 to 48.6. Prices surged from 55.8 to 60.9, highest reading since June 2022.

ISM said: "The past relationship between the Manufacturing PMI® and the overall economy indicates that the April reading (49.2 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis."

Full US ISM manufacturing release here.

Daily Pivots: (S1) 156.64; (P) 157.25; (R1) 158.42; More...

USD/JPY is extending the consolidation pattern from 160.20 and intraday bias remains neutral. In case of another fall, downside should be contained by 38.2% retracement of 146.47 to 160.20 at 154.95 to bring recovery. For now, break of 160.20 is not envisaged in the near term. Meanwhile, firm break of 154.95 will turn bias to the downside for deeper correction to 55 D EMA (now at 152.24).

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Daily Pivots: (S1) 0.9128; (P) 0.9162; (R1) 0.9231; More....

Intraday bias in USD/CHF remains on the upside for 0.9243 resistance. Decisive break there will carry larger bullish implications. Next target will be 61.8% projection of 0.8728 to 0.9151 from 0.9009 at 0.9270. For now, near term outlook will stay bullish as long as 0.9087 support holds, in case of retreat.

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8884 resistance turned support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish for 1.0146.

Daily Pivots: (S1) 1.0642; (P) 1.0688; (R1) 1.0713; More...

Intraday bias in EUR/USD remains mildly on the downside at this point. Recovery from 1.0601 could have completed at at 1.0752 already. Further fall would be seen for retesting 1.0601 first. Firm break there will resume larger fall and target 100% projection of 1.1138 to 1.0694 from 1.0980 at 1.0536. For now, risk will stay on the downside as long as 1.0752 resistance holds, in case of recovery.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Current fall from 1.1138 is seen as the third leg. While deeper decline is would be seen to 1.0447 and possibly below, strong support should emerge from 61.8% retracement of 0.9534 to 1.1274 at 1.0199 to complete the correction.

Daily Pivots: (S1) 1.2465; (P) 1.2517; (R1) 1.2544; More...

Intraday bias in GBP/USD remains neutral for the moment and outlook is unchanged. On the upside, above 1.2568 will resume the rebound from 1.2298 to 55 D EMA (now at 1.2578). Sustained break there will argue that fall from 1.2892 has completed already, and bring further rise to this resistance. Nevertheless, on the downside, break of 1.2448 minor support will indicate that rebound from 1.2298 has completed, and turn bias back to the downside for this low.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Dollar's rally slowed slightly in early US session despite robust ADP job data, as traders adopt a cautious stance ahead of the highly anticipated FOMC statement and Chair Jerome Powell's press conference. With a hawkish shift expected from Fed, the extent of Powell's hawkish tone remains the primary focus. Market participants are speculating on whether Powell will merely dismiss a rate cut in June, suggest fewer rate cuts throughout the year, or even hint at the possibility of a rate hike.

In the broader currency market, Yen is currently the strongest performer for the week, followed by Dollar and Sterling. Aussie lags as the weakest, with Kiwi and Loonie also underperforming. Euro and Swiss Franc hold their ground in the middle of the pack. The upcoming reactions to Fed's decisions are poised to be pivotal, influencing not just currencies but also the stock and bond markets, as well as their interactions.

Technically, WTI crude oil's fall from 87.84 resumed through 81.20 support today. More importantly, the break of medium term rising channel support argues that rally from 67.79 might have completed. If that's true, WTI would now be in another falling leg of the sideway pattern from 63.67. Next that is 100% projection of 87.84 to 81.20 from 84.88 at 78.60. This potential decline in oil prices could have favorable implications for inflation, offering some relief from persistent price pressures.

US ADP employment rises 192k in Apr, vs exp 180k

US ADP private employment grew 192k in April, above expectation of 180k. By sector, goods-producing jobs rose 47k, service-providing jobs rose 145k. By establishment size, small companies added 38k jobs, medium companies added 62k, large companies added 98k.

Year-over-year pay gains for job-stayers were little changed in April at 5%. Pay growth for job- changers fell from 10.1% in March to 9.3%.

"Hiring was broad-based in April," said Nela Richardson, chief economist, ADP. "Only the information sector – telecommunications, media, and information technology – showed weakness, posting job losses and the smallest pace of pay gains since August 2021."

UK PMI manufacturing finalized at 49.1, sector faces multiple challenges

UK PMI Manufacturing was finalized at 49.1 in April, down from March's 50.3. This decline was also reflected in four key areas: output, new orders, employment, and stocks of purchases. Furthermore, input price inflation hit a 14-month high, exacerbating cost pressures for manufacturers.

Rob Dobson, Director at S&P Global Market Intelligence, highlighted the renewed downturn, attributing the challenges to weak market confidence, client destocking, and disruptions caused by the ongoing Red Sea crisis. These factors have notably hindered the sector's ability to secure new work from key international markets including Europe, the US, and Asia.

The manufacturing downturn is prompting firms to exercise "cost caution," leading to reduced employment levels, lower stock holdings, and cutbacks in purchasing activity. Dobson expressed concern over the implications for consumer price inflation, noting that the ongoing cost pressures within the manufacturing sector are complicating efforts to return inflation to target levels.

Japan's PMI manufacturing finalized at 49.6, moving towards stabilization

Japan's PMI Manufacturing was finalized at 49.6 in April, marking an increase from March's 48.2 and reaching its highest level in eight months. While the index remains below the pivotal 50.0 mark, which distinguishes expansion from contraction, the latest data suggests that the sector is moving towards stabilization in the near term.

Paul Smith from S&P Global Market Intelligence noted that the April PMI "continued to paint a fairly subdued picture of the Japanese manufacturing sector," but also pointed out that "another rise in the headline PMI points to a sector heading towards at least stabilization in the near-term."

The report also highlighted concerns about inflation, with a broad-based increase in input prices contributing to heightened cost pressures for manufacturers. Notably, the strength of market demand is allowing firms to pass these increased costs onto consumers, with the extent of charge hikes reaching the steepest level in nearly a year.

New Zealand employment falls -0.2% qoq in Q1, unemployment rate jumps to 4.3%

New Zealand employment fell -0.2% qoq in Q1, much worse than expectation of 0.3% qoq growth. Unemployment rate rose from 4.0% to 4.3%, above expectation of 4.0%. Underutilization rate rose 0.5% to 11.2%. Employment rate fell -0.6% to 68.4%. Labor force participation rate fell -0.3% to 71.5%.

For wages, average ordinary time hourly earnings growth slowed from 6.9% yoy to 5.2% yoy. All sector unadjusted labor cost index slowed slightly from 4.3% yoy to 4.1% yoy.

"Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys," business employment insights manager Sue Chapman said.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2465; (P) 1.2517; (R1) 1.2544; More...

Intraday bias in GBP/USD remains neutral for the moment and outlook is unchanged. On the upside, above 1.2568 will resume the rebound from 1.2298 to 55 D EMA (now at 1.2578). Sustained break there will argue that fall from 1.2892 has completed already, and bring further rise to this resistance. Nevertheless, on the downside, break of 1.2448 minor support will indicate that rebound from 1.2298 has completed, and turn bias back to the downside for this low.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Economic Indicators Update

Hello fellow traders. In this technical article we’re going to look at the Elliott Wave charts of Oil published in members area of the website. The commodity shows bullish sequences in the cycle from the 67.75 low. Consequently we are favoring the long side and recommending members to keep buying the dips in 3,7,11 swings when get a chance. However, short term cycle from the April 12th peak shows incomplete sequences, suggesting more downside in near term. In further text we’re going to explain the Elliott Wave analysis.

OIL Elliott Wave 1 Hour Chart 03.09.2024

Oil is showing incomplete sequences in the cycle from the April 12th peak. The price structure is calling for more downside as far as 86.3 pivot holds. Current view suggests we are about to complete wave ((x)) connector as Elliott Wave Zig Zag Pattern. We don’t recommend selling. Strategy is waiting for extreme zone to be reached before buying the commodity again.

OIL Elliott Wave 1 Hour Chart 03.13.2024

The commodity completed 3 waves correction as ((x)) black, and made decline toward new lows as expected. The price is heading toward our target area 80.19-76.42 where we would like to be buyers again. We don’t recommend selling the commodity and prefer the long side from the mentioned extreme zone.